Mark Koscinski behavioral economics, decision analysis

Stocking Stuffers

With  Christmas being upon us, we often scramble to find some small, last minute gifts that can be used as stocking stuffers.  This year, try something different. Why not give someone something old fashioned, like a book?  I mean an actual book in print and not a digital version of the book. Something they can hold in their hands.  I know, a quaint idea…. A book is a perfect stocking stuffer. 

So, If you are actively involved in management of any kind of organization, whether it is for profit, not for profit, or governmental, here is my reading list and ideas for last minute stocking stuffers.  They are listed in alphabetical order and not in suggested priority.  

The Beekeeper: Pollinating Your Organization for Transformative Growth by Katie Desiderio and  Michael Frino.  This is a wonderful and easy to read book describing how successful managers should run their organizations and treat their employees and colleagues.  The book is narrated by Catherine, the young founder of a business. A magical vacation experience transforms the way she leads her organization. Any manager will find this to be a thought provoking book.

Move: How Decisive Leaders Execute Strategy Despite Obstacles, Setbacks, and Stalls by Patty Azzarello. Discerning the proper strategy for an organization can be hard enough. Executing that strategy can be a whole different story.  Patty Azzarello, a successful consultant and business executive presents her ideas on how to get your organization moving forward. To be sure, this is not a book written for academics. Rather, It is written for the manager in the trenches who is trying to  execute strategy. This book  is a practical guide on implementing the organization’s mission and vision.

Noise: A Flaw in Human Judgement by Daniel Kahneman, Oliver Sibony, and Cass Sunstein. The authors of this book don’t need any introduction.  They are the Dream Team of Management Theorists.  Noise can be thought of as a sequel to Thinking Fast and Slow, Kahneman’s previous book on decision making.  Kahneman et. al. distinguish  between bias and noise. Bias receives all the attention, but noise can cause just as much variability in decision making. This is a well-written book that explains some difficult concepts in an understandable and accessible way. 

The Voltage Effect: How to Make Good Ideas Great and Great Ideas Scale by John List. Scalability has become a buzzword in the management community.  The author, a renowned academic and chief economist at Lyft and Uber, takes us on a tour of how to ramp up a small operation and make it larger.  List describes both the successful strategies for scaling and the pitfalls in trying to scale your organization.  It is a delightful book with many great ideas. 

All work and no play is not good for anyone.  So, if you are looking for pure pleasure reading on an offbeat topic,  I would suggest American Cosmic and Encounters, both written by Diana Walsh Pasulka.  These books discuss the UAP phenomena  from a fresh and interesting perspective. 

So everyone, good luck on beating the crowds in the shopping malls.  From someone who has always hated that, these books all have one advantage: you can order them from Amazon!

Have a great holiday season. 

Mark Koscinski behavioral economics, decision analysis, NFP

Altruism

In a previous blog, I wrote about optimism and its importance in both the business and the NFP world.  Today, I would like to discuss altruism. What makes someone donate to a charity? If only NFP fundraisers knew the answer to this question… Neuroscientists and behavioral economists are trying to provide an answer.  Donors and volunteers have a sense of altruism, gained from  acts reducing their own well-being in order to help others. These acts include  donating or volunteering. The reductions in savings and free time to help out arguably reduces the donors’ well being.  Or, do they? Economists use the term “other regarding preferences” to describe altruistic acts. Giving  time and treasure to a charity comes from internal motivation and a sense of  identity. Donors and volunteers get a “warm glow” feeling or additional utility (to use another economic term) from these actions and neuroscience has developed evidence of this. Dopamine levels rise when altruistic acts are performed. 

Are altruistic acts completely altruistic? Sometimes a seemingly altruistic act isn’t so altruistic. Donating and expecting returns is not really altruistic. For example, political donors may expect  they will receive an appointment or their companies may receive additional business from the government.  Donating significant amounts of money to a charity can send a signal to others of great wealth and conspicuous consumption. These would not be altruistic acts. To a lesser extent,  don’t we expect some return for our donations?  We might get tax deductions for our donations and some recognition for our volunteer efforts.  The economist James Andreoni coined the term “impure altruism”  in 1990 to describe how even the warm glow feeling we get from donating makes our motivation somehow tainted with self-interest. 

While this  discussion is intellectually stimulating, don’t look too deeply into the motivation of donors and volunteers.  They are objectively doing a good thing so I suggest just leave well enough alone.  There are philosophical treatises on mixed motives that are well beyond the scope of this article, but I would suggest human beings are complex creatures who may not be able to articulate their motivations to themselves let alone to anyone else.  As a practical matter judging motivations of a donor or volunteer is at best a very, very tricky endeavor, not worth the time and effort of the NFP management.  There is no moral, ethical, or legal requirement to do so.  Running an NFP is difficult enough.  Why take on the burden of figuring out the motives of donors? 

Mark Koscinski NFP

Behavioral Economics and the NFP Organization

Behavioral economics and finance have become all the rage in academic circles over the last several decades. All you have to do to confirm this is look at the list of behavioral economists who have won the Nobel prize since 2000. They include Daniel Kahneman (2002), Robert Shiller (2013), and Richard Thaler (2018), all of whom have been connected with this school of thought.  

How can behavioral economics help the NFP manager?  Well, here are five specific suggestions:

  • In their book Nudge, Thaler and Cass Sunstein suggest donations to charities can be increased with a Give More Tomorrow program. Donors are asked to give a small amount to their favorite charity beginning in two months and to commit to increasing the amount every year.  A study by Anne Breman in 2006 found this simple nudge increased donations by 32 percent.  Thaler and Sunstein also suggested the use of a charity debit card, but that proposal doesn’t seem to have gathered  a lot of traction.
  • We are all familiar with charities that have donation tiers.  For instance, if you donate $x you will be a Friend of the Charity.  If you donate $y you will be a Patron of the Charity and so forth. Strategically set the tiers, as donors will calibrate their contributions to achieve their desired level of recognition.   This is an example of impure altruism, but more on that in a future blog.
  • Use a silent phase for capital campaigns.  Suppose there are two charities that wish to raise $100,000.  One simply announces the goal and asks for contributions.  Another raises seed money of say $50,000 before announcing the capital campaign. The second charity will receive greater donations than the first.  People want to donate toward an achievable  goal. They can readily see how their contribution will help get the charity to that goal
  • Put a face on your fundraising drive. People are more willing to donate when there is someone like them in need. Donors can identify and empathize with a real person. They can see how their donation will help this one person and will be more likely to donate.. Put another way, the bigger the problem you are trying to solve the less people will donate. For example, suppose you start a fund drive to end global warming. This will be rough sledding as donors simply can’t connect or comprehend the enormity of the issue. They can’t see how their small donation will help end such a huge crisis. 
  • Try to build a sense of community with donors, making them “one of us”. Donors want to belong to something good.  It gives them a “warm glow effect”. More on that in a future blog as well.
Mark Koscinski Uncategorized

Bad Connotations

Certain phrases originally having innocuous meanings sometimes take on bad connotations. Many times it is not entirely clear how or why this happens, but you use these phrases at your own peril. Here are some recent examples you might run across:

Data Mining is  the process of extracting and discovering patterns in “Big Data”.  Recently, while taking a continuing education course I was a little astonished to hear the instructor tell us not to use the phrase “data mining”.  It has picked up some nasty connotations.  He advised using such terms such as data analytics and prescriptive analytics instead.  Last week I came across an article on Fox News with the headline “Utah parents heated after discovering DOJ ‘mining’ racial data, names of their children: ‘absolute overreach’. It seems data mining has become synonymous with invasion of privacy, marketing manipulation, security risks and a plethora of other nasty activities. 

Neuromarketing is the measurement of neurological and physiological reactions to determine customer motivations. It developed out of neuroscience and neuroeconomics and is now tinged with the stain of manipulation.  Many people feel that marketing itself is a form of manipulation, but now tailoring marketing campaigns to produce dopamine and provoke involuntary reactions to stimuli seems to be  an even worse form of manipulation to many.

Nudging was described by Richard Thaler, winner of the Nobel Prize in Economics in 2017, and Cass Sunstein, a Harvard law professor who is brilliant in his own right, in their 2008 book Nudge: Improving Decisions about Health, Wealth, and Happiness. The book was amazingly well written and accessible by almost anyone, but the premise was controversial.  Thaler and Sunstein believed in “liberal paternalism” where people could be guided into “right” decisions through a process of nudging people in the direction of the “correct” answers. Examples in the book include how this process would work in picking retirement savings and health insurance plans.   Nudging has many advocates, but it has many detractors too.  Some critics have called this theory yet another type of manipulation by the government. 

What do these all have in common?  It seems to me the issue with each of these is a perceived  restriction on freedom and some form of perceived manipulation.  I say perceived in both cases because I personally believe the jury is still out on whether this is the case or not. Thaler and Sunstein state the careful application of nudge theory is not really manipulation but rather a simple use of techniques and/or technology to lead people to the right decision about critical life decisions. Yet people feel uneasy about giving up their right to be, well….wrong.  People obviously do not want to be manipulated, nor do they want to surrender their privacy.  In fact, people have now become  less trusting and are becoming leery of anything that could even potentially be used to violate their own personal space. They fear data mining, neuromarketing and nudging (whether by the government or by big corporations) could be the beginning of this path. Only time will tell, but for now, I would suggest staying away from using these terms. You may only be looking for trouble if you do.